Chapter-IV

STRUCTURAL CHANGE IN INDIAN ECONOMY

Introduction

The process of development requires structural change.

The structural change of an economy takes place mainly along
two dimensions: one is the changing sector-wise shares in GDP
and the second is the changing share of the labour force,
engaged in each sector. In case of developed countries, it is seen
that as a first step, the agriculture sector loses its importance
with a simultaneous growth of the manufacturing sector and/or
tertiary sector. Most of the developed countries and some of the
newly industrialized countries have crossed this threshold and
are now experiencing a shift from manufacturing sector to the
services sector (Madhusudan, 2001). But, the experience of
Indian economy is unique. In India, the service sector has grown
by bye-passing the secondary sector. In this context, this
chapter is an attempt to trace the structural change in terms of
input structure, production structure and employment
structure.

Structural Change: Theoretical Evidence

The process of development requires structural change.

The structural change of an economy takes place mainly along
two dimensions: one is the changing sectoral share in GDP and
the second is the changing share of the labour force engaged in
each sector. In case of developed countries, it is seen that as a
first step the agricultural sector loses its importance with a
simultaneous growth of the manufacturing sector or tertiary
sector. Most of the developed countries and
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some of the newly industrialized countries have crossed this

threshold and are now experiencing a shift from manufacturing
sector to the services sector (Madhusudan, 2001). For
economists like Lewis, economic growth requires structural
change in the economy, for example, a movement of workers
from low value added agriculture sector to higher value added
manufacturing and service sectors.

Modern economic development cannot be explained

satisfactorily in terms of labour and capital alone. A large
number of theories of economic development have been
propounded in the recent past. Different factors have been
identified as determinants of growth in different growth models.
The modern economists emphasize the catalytic role that
technological changes play in the growth of an economy (Joshi,
2004). The technological changes bring about an increase in per
capita income, either by reducing the amount of inputs per unit
of output or by yielding more output for a given amount of
input. Technological change of an economy, therefore, refers to
changes in the input-output relations of production activities.
Consequently, as an economy moves from lower to higher stages
of development, there occurs a shift from simpler to more
modern and complicated techniques of production, on the one
hand, and from primary to secondary and/or to tertiary sectors,
on the other. The excess growth of tertiary sector coupled with
state-of-the-art technology has got its own implication for the
future development patterns of the system.

Structural changes do not only characterize economic

development, they are also necessary for sustaining economic
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growth. The neoclassical view that sectoral composition is a

relatively unimportant by-product of growth has been
convincingly questioned by structural economists like Kuznets,
who have empirically demonstrated that growth is brought
about by changes in sectoral composition. This is so both for the
reasons of demand and supply. Though the emphasis laid on
different factors by different economists has varied, the broad
line of reasoning advanced by pioneers like Fisher and Clark
and followed with some elaborations and modifications by later
analysts has been as follows: Income elasticity of demand for
agricultural products is low; that for industrial, particularly
manufacturing goods, is high; and, for services, it is still higher.
As a result, with rising levels of income, the demand for
agricultural products relatively declines and that for industrial
goods increases and, after reaching a reasonably high level of
income, demand for services increases sharply. Accordingly the
shares of different sectors in the national product get
determined by the changes in the pattern of demand.

On the supply side, agriculture being mainly dependent on

a fixed factor of production, namely land, faces a limit on its
growth and is subject to early operation of the law of
diminishing returns. Industry, specially manufacturing, on the
other hand, offers large scope for use of capital and technology,
which could be augmented almost without limit with human
effort. Labour supply could constrain expansion of industry, but
it is possible to overcome it by introducing labour-saving
technological changes. The same applies to services, where
application of technologies seems to offer
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much larger scope, as shown by the experience over the past

few decades.

Growth of an economy is always associated with

structural changes in the economy. The changes take place in
the form of sectoral composition as well as occupational
structure of the workforce. Economic structure is generally
divided into three broad sectoral economic activities: primary,
secondary and tertiary. The primary sector mainly covers the
agriculture and allied activities; the secondary sector covers the
manufacturing, construction etc; and the tertiary sector refers
to the services. Service sector consists of trade and commerce,
transport and other such activities. Most of the studies have
shown that with development, the share of agriculture in
production and employment that is typically high in the early
stages begins to decline and that of manufacturing begins to
increase. The next stage in this sectoral evolution is the shift
towards services. According to Fisher, “in every progressive
economy, there has been steady shift of employment and
investment from the essential primary activities to secondary
activities of all kinds and to a still greater extent into tertiary
production”.

Many countries in their early stages of economic

development had followed a two-sector growth model that
envisaged industry to be the „engine of growth‟, whereby a
significant transfer of investable resources, mainly labour and
raw material, takes place from agriculture with active support of
the government (Lewis, 1984; Thakur, 1992). Following
Kuznet‟s analysis (Kuznet, 1979), it was also highlighted that a
rise in productivity in agriculture is a
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precondition for economic growth and structural change since

only then agriculture generates a surplus and be in a position to
fulfill its developmental tasks. Accordingly, trade policies that
promote import substitution industrialization through
favourable terms of trade for manufacturing, easy availability of
foreign exchange reserves, low effective protection for agriculture
and high nominal industrial protection and direct taxation of
agriculture income policies were designed. The broad
implication of this type of growth strategy was a decline in the
relative share of agriculture in gross national income and labour
force, which was considered to be a natural outcome of
structural transformation. Many development economists
viewed this approach to have encouraged neglect of agricultural
sector. A greater emphasis was laid on interdependence of the
two sectors in the subsequent decades, which implied a much
significant role of agriculture in the growth process.

India, which is one of the largest agricultural-based

economies, remained closed until the early 1990s. By 1991,
there was growing awareness that the inward-looking import
substitution and overvalued exchange rate policy coupled with
various domestic policies pursued during the past four decades,
limited entrepreneurial decision making in many areas and
resulted in a high cost domestic industrial structure that was
out of line with world prices. Hence, the new economic policy of
1991 stressed both external sector reforms in the exchange rate,
trade and foreign investment policies, and internal reforms in
areas; such as industrial policy, price and distribution controls,
and fiscal restructuring in the financial and public sectors. In
addition,
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India‟s membership and commitment to World Trade

Organization (WTO) in 1995 was a clear sign of India ‟s intention
to take advantage of globalization and face the challenge of
accelerating its economic growth. One measure of economic
growth is given by productivity growth as it forms the basis for
improvements in real incomes and welfare. The concept of
productivity growth gained importance for sustaining output
growth over the long run as input growth alone is insufficient to
generate output growth because of diminishing returns to input
use.

While studying expansion of industry at the expense of

agriculture and its significant contribution to economic growth
and employment generation, attention was also given to
emergence of tertiary sector in the developed economies. Fisher
(1939) and Clark (1940) maintained that since demand for
services and manufactured items are more elastic than
that of agriculture, a shift away from agriculture towards
services and manufacturing is expected in the course of
development. This would happen only once agriculture and
industry mature. A positive and significant association between
manufacturing and services is hypothesized, which is
anticipated to become stronger at the advanced stages of
industrialization. The argument runs as follows: “with
expansion of the economy, particularly in the manufacturing
sector, demand for services like trade, hotel, and transport,
banking and social services such as education, hospitals and
other infrastructure increases and raises productivity of the
industrial sector as well”. In turn, the service sector growth
depends on the development of manufactured inputs. With
rising per capita incomes and high-income elasticity of
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demand for services, a bidirectional (two-way) growth linkage is

envisaged between manufacturing and services through increase
in demand for each other‟s output (Park and Chan, 1989). This
argument very well applies in the case of developing countries
too where both manufacturing sector and services have shown
progressive growth over the decades.

Economy on the Eve of Independence

We had inherited an economy, which was basically geared

to the interest of our colonial masters. The rate of growth of per
capita income during the hundred year period before
Independence, from whatever scanty information is available,
was just 0.5 per cent per annum. It has further been noted that
there were long spells when the economy actually stagnated or
declined.
 In the past, it was known for producing fine cotton fabric,
handicrafts and other merchandise. Even during the early
British Raj, that is, before the onset of industrial revolution in
Britain, our economy was an industrial economy by the
standards of those days, whereas the European economies had
yet to usher in modern civilization. Yet, by the time we got
Independence, our economy was primarily reduced to an
agricultural economy and we used to export mainly raw
materials and minerals for the British industries and even food
grains while we might have been hungry ourselves.

Trends in Distribution of National Income

Trends in the distribution of Gross Domestic Product

(GDP) by industrial origin show that the Indian economy has
98

undergone a vast structural change over the last few decades

(Table 4.1). In the year 1950-51, ours was predominantly an
agricultural economy with 56.70 per cent share of the GDP
originating from primary sector. The share of the secondary
sector being 13.66 percent in the same year is indicative of the
fact that manufacturing and allied activities were just in the
developing stage. The share of tertiary sector, almost the double
of secondary, stood at 29.64 per cent.

Table 4.1: Percentage Sectoral Shares in GDP at 1999-00 Prices

Year Primary Sector Secondary Sector Tertiary Sector Total GDP

Rs. Crore Percent Rs. Crore Percent Rs. Crore Percent Rs. Crore

1950-51 127062 56.70 30618 13.66 66418 29.64 224098

1960-61 172433 52.48 56143 17.09 99993 30.43 328569

1970-71 217862 46.00 96642 20.41 159087 33.59 473591

1980-81 256342 39.93 141420 22.03 244159 38.04 641921

1990-91 368907 34.05 251868 23.24 462797 42.71 1083572

2000-01 487992 26.18 438372 23.51 937937 50.31 1864301

2001-02 516584 26.19 450723 22.85 1005299 50.96 1972606

 2002-03 486134 23.73 481758 23.52 1080394 52.75 2048286

2003-04 531302 23.90 519322 23.36 1172134 52.73 2222758

2004-05 535501 22.42 574072 24.03 1279195 53.55 2388768

2005-06 566278 21.65 635223 24.28 1414600 54.07 2616101

2006-07 591353 20.60 706280 24.60 1573485 54.80 2871118

2007-08 619121 19.78 766358 24.49 1744238 55.73 3129717

2008-09 751362 18.05 1071676 25.75 2339471 56.20 4162509

2009-10 760974 16.93 1158000 25.77 2574769 57.30 4493743

Source: Economic Survey of India, various issues

The primary sector includes activities like agriculture,

forestry and fishing, mining and quarrying etc. The share of
primary sector that was 56.70 percent of GDP in the year 1950-
51, came down to 52.48 percent in 19601-61; to 46.00
in 1970-71; to 39.93 in 1980-81; further to 34.05 in 1990-91;
26.18 percent in 2000-01; and finally to 16.93 in the year 2009-
10. Thus over a span of past 60 years, the share of primary
sector related activities, in general, and the agriculture, in
particular, in the GDP has come down to one
third of what it was initially. The decline of primary sector share
with every increase in the GDP is indicator of a healthy
economic development. It shows that a raw materials
99

producing/supplying economy is gradually shifting to a

manufacturing and rigorous processing economy that has a
higher value added generation.

The secondary sector of the economy has shown a change

at the snails pace. The share of secondary sector that was 13.66
percent of GDP in the year 1950-51 took a long span of 60 years
to grow to 25.77 percent. The share of secondary sector during
the decades of 1970s and 1980s remained in the range of 20 to
22 percent of GDP. The decade of 1990s shows that the pace of
change in the share of secondary sector in the GDP was very
negligible and just near stagnation. The structural change in
India, during the last half-century, is characterized by a
shrinking share of agriculture coupled with slow paced
industrial development. Decade of 1990s and the last few years
are indicative of the fact that the share secondary sector as a
percentage of GDP has stagnated around 25 percent.

Tertiary sector consists of trade and commerce, transport

and other such activities. The percentage share of tertiary sector
in the GDP has almost doubled as compared to what it was in
the year1950-51. It has grown to 57.30
percent in 2009-10 as compared to mere 29.64 percent in 1950-
51. In the initial years, i.e., during the decades of 1950s, 60s
and 70s there was an overall rise of not more 5 percent in this
share. Most of the change in tertiary sector is during the last
two decades. This implies that the tertiary sector has been the
major beneficiary from the change.

Instead of percentage sectoral shares, the growth profile of

the three sectors may display the underlying structural
100

dynamics more clearly. Sector-wise decadal and the overall

growth rates are presented in table 4.2 and chart 4.1. Table
presents the average annual growth rate of GDP and three
sectors during fifties, sixties, seventies, eighties and ninety
onwards. On the whole the gross domestic product has grown at
the rate of 4.46 percent per annum during the last half century
under consideration. During this period the primary sector has
grown at the rate of 2.74 percent per annum against the growth
of secondary and tertiary sector at a more than 5 percent per
annum. That is to say the rate of growth of secondary and
tertiary sector has been almost the double that of the primary
sector.
 Further periodic breakup according to decades
underscores some interesting facets of the underlying dynamics.
The growth of GDP that was 3.79 percent per annum in the
decade of fifties and 3.55 in the sixties came down to 3.42
percent per annum in the seventies. The average annual growth
rate of GDP picked up in the eighties and ninety onwards. The
growth rate of GDP was 5.29 percent per annum during the
eighties and it was 6.01 percent per annum during the period of
nineties and it went to 7.80 percent per annum during 2000-01
to 2009-10. Primary sector that grew at a rate of 2.87 per
annum in the fifties and at 2.10 percent per annum in the
sixties came down to 1.94 percent per annum during the
seventies. During the eighties the primary sector grew at the
rate of 3.41 percent per annum.

On the other hand, secondary sector has shown

consistently a good performance, i.e., with an exception of
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decade of seventies, the rate of growth has always been above

5.50 percent per annum. The growth rate of secondary sector is
slightly lower in the seventies as compared to that of the other
decades. The tertiary sector which grew at 4.00 to 4.75 percent
during the first three decades achieved the growth rate of 6.76
percent per annum in the eighties; 7.67 percent per annum in
the nineties and an ever time high growth rate of 9.31 percent
per annum during 2000-01 to 2009-10. This implies that
tertiary sector has responded positively; the primary sector has
responded adversely to the economic reforms process of the
nineties and the secondary sector is in its transitional phase of
making adjustment of capital, labour and technology.

Table 4.2: Growth Rate of GDP and Different Sectors during the
Period 1950-51 to 2009-10
Years GDP Primary Secondary Tertiary
(Percent Sector Sector Sector
 per (Percent (Percent (Percent
annum) per per per
annum) annum) annum)

1950-51 to 1960-61 3.79 2.87 6.35 4.22

1960-61 to 1970-71 3.55 2.10 5.52 4.57

1970-71 to 1980-81 3.42 1.94 4.38 4.59

1980-81 to 1990-91 5.29 3.41 5.78 6.76

1990-91 to 2000-01 6.01 3.26 6.33 7.67

2000-01 to 2009-10 7.80 3.40 8.80 9.31

1950-51 to 2009-10 4.46 2.74 5.40 5.67

Source: Economic Survey of India, various issues

Chart 4.1: Growth Profiles of GDP and Different Sectors during

the Period 1950-51 to 2009-10.
35
30 2000-012000-01 to
2007-08
25 Tertiary
20 Secondary Primary
GDP
15
10
5
0
1950-51 to
1960-611960-61 to
1970-711970-71 to
1980-811980-81 to
1990-911990-91 to

102

Growth of tertiary sector accounts for more than half of

the India‟s gross domestic product; it is comparable to any
developed economy in terms of this share. It has grown by bye-
passing secondary sector. The Indian economy is passing
through a transition to finally culminate into a service sector
growth lead economy. The viability of such a service sector
growth lead economy with weak primary and secondary sectors
is a million dollar question that needs a thorough research at
this juncture of time.

Relative Shares of Sub-Sectors of GDP

 Tertiary sector includes trade, hotels, transport and
communication, financing, insurance, real estate and business
services, public administration and defence and other services.
Table 4.3 shows that the share of „trade, hotels, transport and
communication‟ improved from 11.34
percent in the year 1950-51 to 26.55 percent in 2009-10.
During the period under analysis, its share has reached to level
that is more than double what it was in the beginning.

This increase in the share has been gradual and

consistent. The share of trade, hotels, transport and
communications was 17.45 per cent in 1980-81 and improved to
18.34 per cent in 1990-91 and finally to 22.30 percent in the
year 2000-01. The rise in share during the nineties decade is
attributable more to the trade, transport and communication
than to hotels. In the recent years, it is the communication only
that has witnessed a more growth as compared to other
components of the sub-sector.
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Table 4.3: Percentage Distribution of GDP at Factor Cost by

Industry of Origin at 1999-00 Prices
Year Sector Code

1 2 3 4 5 6

1950-51 56.70 13.66 11.34 7.69 10.61 100.00

1960-61 52.48 17.09 13.05 7.03 10.35 100.00

1970-71 46.00 20.41 14.74 6.82 12.03 100.00

1980-81 39.93 22.03 17.45 7.49 13.10 100.00

1990-91 34.05 23.24 18.34 10.58 13.78 100.00

2000-01 26.18 23.51 22.30 13.04 14.98 100.00

2001-02 26.19 22.85 23.01 13.22 14.74 100.00

2002-03 23.73 23.52 24.25 13.75 14.75 100.00

2003-04 23.90 23.36 25.03 13.37 14.33 100.00

2004-05 22.42 24.03 25.78 13.52 14.24 100.00

 2005-06 21.65 24.28 26.39 13.76 13.93 100.00

2006-07 20.60 24.60 27.13 14.26 13.41 100.00

2007-08 19.78 24.49 27.97 14.62 13.14 100.00

2008-09 18.05 25.75 26.13 16.98 13.10 100.00

2009-10 16.93 25.77 26.55 17.17 13.57 100.00

Sector Codes
1: Agriculture, forestry & fishing, mining and quarrying.
2: Manufacturing, construction, electricity, gas and water supply
3: Trade, hotels, transport& communication
4: Financing, insurance, real estate and business services
5: Public administration & defense and other services
6: Gross domestic product at factor cost
Source: Economic Survey of India, 2008-09

The share of financing, insurance, real estate and

business services has also almost doubled during the last half
century. The share of these services was 7.69 per cent of the
total GDP in the year 1950-51 and increased to 17.17 per cent
in 2009-10. As compared to real estate and insurance, it is the
financing and business services that have registered a major
share in this sub-sector. This is in response to the liberalization
and privatization in the area of banking and finance. Many new
business services have come into being, e.g., advertising, event
management and so on. The share of public administration,
defence and other services, including mainly the items of
government expenditure, have reached at a level of 13.57
percent in the year 2009-10 as compared to 10.61 percent in
1950-51. The process of economic growth involves a rapid
expansion of public administration,
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especially a rapid expansion of economic and welfare services

such as education, health and family welfare.

Sector-wise Growth Profiles of GDP

Growth profile of the gross domestic product of

various sectors, given in table 4.4, is indicative of the fact that
in the primary sector (agriculture, forestry & fishing, mining and
quarrying) the growth rate of gross domestic product was 4.46
percent per annum during the period 1950-
51 to 2009-10, whereas, it was 2.74 percent per annum in the
case of primary sector during the same period. Further, it was
observed that the growth rate of primary sector remained
highest during the reform period, i.e., 1990-91 to 1999-00
compared to pre-reform periods. It is important to note that
primary sector did not grow at the pace of gross domestic
product; as it always remained below considerably during all the
decades. As far as the secondary sector is concerned, the
analysis reveals that the growth rate of GDP turned out to be the
highest (8.80 percent per annum) during the recent time period,
i.e., 2000-01 to 2009-10. During the decade of nineties, it was
the maximum, as compared to all earlier decades.

Further, in the tertiary sector, „trade, hotels and

communication‟ section that grew around five percent per
annum in the decades of fifties, sixties and seventies rose to the
level of 5.86 percent per annum in the decade of eighties and
finally touched the growth level of 11.31 percent per annum, in
the recent years. Financing and real estate grew at a rate of 3 to
4 percent in the first three decades and suddenly touched the
growth level of 10 percent per annum.
105

Most of the growth of eighties decade was due to real estate

segment. The financing and business services growth is
phenomena of nineties decade. During this decade the growth of
financing, insurance, real estate and business services has been
7.95 percent per annum and went to 9.35 percent per annum in
the recent years. Public administration, defense and other
services has grown from 3 to 5 percent per annum level of first
three decades to 6.4 percent in eighties decade and to 5.81
percent per annum in the last segment.

Table 4.4: Sector-wise Growth Rates (Percent per Annum) of

GDP at 1999-00 Prices
Sector Compound Annual Growth Rate (percent per annum)

1950- 1960- 1970- 1980- 1990- 2000- 1950-

51 to 61 to 71 to 81 to 91 to 01 to 51 to
1959-60 1969-70 1979-80 1989-90 1999-00 2009-10 2009-10

Agriculture, 2.75 1.64 1.86 3.24 3.42 3.40 2.74

Forestry &
Fishing, Mining
and Quarrying.

Manufacturing, 6.15 5.73 4.49 5.57 6.43 8.80 5.40

Construction,
Electricity, Gas
and Water
Supply

Trade, Hotels, 5.29 4.77 5.40 5.93 8.29 11.31 5.93

Transport &
Communication

Financing, 3.05 3.11 4.44 9.26 7.95 9.35 5.89

Insurance, Real
Estate and
Business Services

Public Adm. & 3.51 5.24 3.68 6.23 6.50 5.81 5.13
Defence and
Other Services

Total Gross 3.66 3.36 3.41 5.17 6.05 7.80 4.46

Domestic Product
at Factor
Cost

Source: Various Issues of Economic Survey of India

Percentage share of components and the growth profile of

the tertiary sector are indicative of the fact that half of the
tertiary sector is formed by the financial sector and the
government expenditure. The share of tradable services is just
the half. If the economy has to achieve the highest level of
service economy, i.e., the knowledge economy, it must increase
the share of tradable services in the basket of tertiary sector.
106

Further, disaggregated picture of the different sectors of

the economy in the post reforms era is given in table 4.5. It gives
information both in terms of value (Table 4.5a) and percentage
shares (Table 4.5b) for selected components of various sectors.
The figures in the table depict that in overall, the share of
primary sector in gross domestic product decreased from 54.88
percent in 1950-51 to 16.95 percent in 2008-09.

Further, at the disaggregated level, all the three sectors

(agriculture, forestry & logging and fishing) registered a decline
(48.30 percent to 16.34 percent, 5.59 percent to 0.65 percent
and 0.99 percent to 0.81 percent respectively) in sharing the
GDP during 1950-51 to 2007-08. Besides, the share of mining &
quarrying showed marginal increase (1.42
percent to 1.92 percent) during 1950-51 to 2008-09 periods. As
far as the secondary sector is concerned, the percentage share
of manufacturing in GDP increased from 9.12 percent to 15.33
percent in 2006-07, and then decreased to 14.61 percent in
2008-09.

The disaggregated picture of the tertiary sector shows that

the percentage share terms sector, „trade, hotels and
restaurants‟ in GDP, registered a positive increase; as it was
8.16 percent in 1950-51 that increased to 15.73 percent in
2008-09. Similarly, in the case of „transportation, storage and
communication‟ it increased tremendously from 3.38 percent to
12.85 percent during the same period. Amongst all the
components of „transportation, storage and communication ‟,
both „transport by other means‟ and „communication‟ showed
massive increase (from 1.62 percent to 5.18 percent and 0.27
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percent to 5.65 percent respectively) in its share in GDP during

1950-51 to 2007-08. Whereas, the railway transportation share,
except marginal changes, is almost stagnant and share of
storage activity is continuously on the decline. It is interesting
to note that the share of communication segment of the tertiary
sector has grown by more than three times in the last ten years.
Further, the share of „financing, insurance, real estate &
 business services increased two times from 7.44 percent to
14.77 percent during the same period under study. At the
component level, the share of financing and insurance has
grown vigorously from 1.00 percent in 1950-51 to 7.09 percent
in 2007-08, whereas, the share of real estate, dwellings,
business & legal services increased gradually from 6.45 percent
to 7.53 percent during the same period. Moreover, the share of
public administration and defence increased from 2.77 percent
in 1950-51 to 5.18 percent in 2007-08, while, the share of other
services including health, education, and social welfare and so
on decreased marginally from 8.09 percent to 7.96 percent
during the same period. On the whole, the trading and transport
activity is picking up and communication segment has shown a
massive growth. Banking and insurance segment of the tertiary
sector is continuously improving. Real estate and dwelling
activity is gradually improving. Half of the tertiary sector lead
growth is due to non-tradable services. In the tradable services
category trade (both wholesale and retail), commerce, banking
insurance, finance and communication activities are leading the
growth path which is a positive sign of growth. There is need of
policy intervention to improve the share of later category of
services.
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Table 4.5a: Gross Domestic Product by Economic Activity (at Constant Prices,
1999-00) in Rs. Crores
Sector Year

1950-51 1960-61 1970-71 1980-81 1990-91 2000-01 2001-02 2002-03 2003-04 20

1. Agriculture, Forestry & Fishing 123129 166477 209344 243421 339893 445403 473249 438967 482677 4

1.1 Agriculture 108374 149838 186668 220624 311500 407176 433475 398206 441360 4

1.2 Forestry & Logging 12542 12876 17355 15796 16280 18399 18964 19090 18872 1

1.3 Fishing 2213 3763 5321 7001 12113 19828 20810 21671 22444 2

2. Mining & Quarrying 3178 5478 8019 12921 29014 42589 43335 47168 48626 5

3. Manufacturing 20463 36466 59653 88740 161979 284571 291803 311685 332363 3

3.1 Registered 8659 17272 31741 45773 101467 186570 195107 209909 224919 2

3.2 Unregistered 11804 19194 27912 42967 60512 98001 96696 101776 107444 1
 4. Elec. Gas & Water Supply 691 1857 5364 10340 23559 45439 46228 48423 50735 5

5. Construction 9931 18324 31426 42339 66330 108362 112692 121650 136224 1

6. Trade, Hotels & Restaurant 18313 30350 48475 73454 130680 267326 293075 313221 344743 3

6.1 Trade 17017 28188 45052 68233 121048 243505 267382 286060 315240 3

6.2 Hotels & Restaurants 1296 2162 3423 5221 9632 23821 25693 27161 29503 3

7. Transport, Storage & Communication 7582 12894 21749 38543 68089 148324 160772 183471 211627 2

7.1 Railways 3129 4934 7442 10278 15832 21996 23535 24864 26336 2

7.2 Transport by Other Means 3629 6548 11661 23122 43378 88735 92311 101779 113907 1

7.3 Storage 214 278 363 875 1221 1514 1523 1421 1493

7.4 Communication 610 1134 2283 4268 7658 36079 43403 55407 69891 8

8. Financing, Insurance, Real Estate & 16705 22631 32065 48067 114670 243048 260737 281550 297250 3
Business Services

8.1 Banking & Insurance 2239 4432 8288 15538 42684 103571 113036 125845 128659 1

8.2 Real Estate, Ownership of Dwellings, 14466 18199 23777 32529 71986 139477 147701 155705 168591 1
Business & Legal Services

9. Community, Social & Personal 24388 34625 57421 84095 149357 279239 290715 302153 318514 3
Services

9.1 Public Administration & Defence 6225 10258 21861 36813 68967 124700 128351 130409 133789 1

9.2 Other Services 18163 24367 35560 47282 80390 154539 162364 171744 184725 1

10. GDP at Factor Cost (1 to 9) 224380 329102 473516 641920 108357 186430 197260 204828 222275 2
1 1 6 8 9

Source: Government of India (2010), Ministry of Statistics and Programme Implementation,

www.mospi.gov.in
109

Table 4.5b: Percentage Distribution of Various Sectors and Sub-Sectors of

Economy in Total GDP
Sector Year

1950-51 1960-61 1970-71 1980-81 1990-91 2000-01 2001-02 2002-03 2003-04 20

1. Agriculture, Forestry & Fishing 54.88 50.59 44.21 37.92 31.37 23.89 23.99 21.43 21.72 2

1.1 Agriculture 48.30 45.53 39.42 34.37 28.75 21.84 21.97 19.44 19.86 1

1.2 Forestry & Logging 5.59 3.91 3.67 2.46 1.50 0.99 0.96 0.93 0.85

1.3 Fishing 0.99 1.14 1.12 1.09 1.12 1.06 1.05 1.06 1.01

2. Mining & Quarrying 1.42 1.66 1.69 2.01 2.68 2.28 2.20 2.30 2.19

3. Manufacturing 9.12 11.08 12.60 13.82 14.95 15.26 14.79 15.22 14.95 1

3.1 Registered 3.86 5.25 6.70 7.13 9.36 10.01 9.89 10.25 10.12 1

3.2 Unregistered 5.26 5.83 5.89 6.69 5.58 5.26 4.90 4.97 4.83

4. Elec. Gas & Water Supply 0.31 0.56 1.13 1.61 2.17 2.44 2.34 2.36 2.28

5. Construction 4.43 5.57 6.64 6.60 6.12 5.81 5.71 5.94 6.13

6. Trade, Hotels & Restaurant 8.16 9.22 10.24 11.44 12.06 14.34 14.86 15.29 15.51 1

6.1 Trade 7.58 8.57 9.51 10.63 11.17 13.06 13.55 13.97 14.18 1
 6.2 Hotels & Restaurants 0.58 0.66 0.72 0.81 0.89 1.28 1.30 1.33 1.33

7. Transport, Storage & Communication 3.38 3.92 4.59 6.00 6.28 7.96 8.15 8.96 9.52 1

7.1 Railways 1.39 1.50 1.57 1.60 1.46 1.18 1.19 1.21 1.18

7.2 Transport by Other Means 1.62 1.99 2.46 3.60 4.00 4.76 4.68 4.97 5.12

7.3 Storage 0.10 0.08 0.08 0.14 0.11 0.08 0.08 0.07 0.07

7.4 Communication 0.27 0.34 0.48 0.66 0.71 1.94 2.20 2.71 3.14

8. Financing, Insurance, Real Estate & 7.44 6.88 6.77 7.49 10.58 13.04 13.22 13.75 13.37 1
Business Services

8.1 Banking & Insurance 1.00 1.35 1.75 2.42 3.94 5.56 5.73 6.14 5.79

8.2 Real Estate, Ownership of Dwellings, 6.45 5.53 5.02 5.07 6.64 7.48 7.49 7.60 7.58
Business & Legal Services

9. Community, Social & Personal 10.87 10.52 12.13 13.10 13.78 14.98 14.74 14.75 14.33 1
Services

9.1 Public Administration & Defence 2.77 3.12 4.62 5.73 6.36 6.69 6.51 6.37 6.02

9.2 Other Services 8.09 7.40 7.51 7.37 7.42 8.29 8.23 8.38 8.31

10. GDP at Factor Cost (1 to 9) 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 1

Source: www.mospi.gov.in
110

Employment Structure

Analysis of any macro relation between growth of output

and that of employment in any economy as a whole is of
considerable importance, as it bears a significant implication.
For the design of developments strategy for any economy has
two basic objectives, i.e., economic growth and creation of
employment opportunities. In most of the countries of the world
the service sector plays a significant role in the expansion of
both GDP and employment. In India the service sector has failed
to play any significant role in employment generation. In India,
we see that the share of the services sector in GDP has lately
increased dramatically. This has led to an interest in examining
this growth. The share of the primary sector in GDP is declining
and those of the secondary and tertiary is growing over the
years. The share of tertiary sector has been large to begin with
and over the years it has become the highest contributor to GDP
displacing the primary sector.
 The share of the workforce in the primary sector has
remained high. The tertiary sector's share in the workforce has
increased but it has not been able to displace the primary
sector's position in this regard. Thus, in terms of employment
the primary sector remains the sector which provides the
maximum employment.

Two features of the Indian case stand out in contrast to

the developed coronaries' pattern of structural transformation.
First, the developed countries the decline in the share of
agricultural GDP was accompanied by an increase in the share
of manufacturing GDP and only after
111

that did the share of services increase but in India, the share of
manufacturing did not increase much. The process of structural
change has been characterized by a decline in the share of
agriculture GDP and an increase in the share of GDP from
services. Secondly, the changing shares of the three sectors in
GDP have mirrored in the changing share of
employment/labour force in these three sectors. In India, on the
other hand, the changing shares of sectoral GDP have not been
mirrored by the changes in the labour force shares.

Table 4.6 reveals that the share of primary sector in the

workforce was to tune of around 72.1 per cent in 1950-51. This
is followed by tertiary sector, which accounted for only 17.2 per
cent and was higher than that of secondary sector. Between
1951 and 1981, the share of the secondary and tertiary sectors
taken together, in the workforce has been
stagnant. However, as we come down from 1981 to 2008-09,
there appears to be some marginal improvement in the labour
absorption capacity of these sectors. The percentage share of
employment was 56.5, 18.8 and 24.8 in primary, secondary and
tertiary sectors respectively during the year 2008-09, as this
marginal change is very slow.

Table 4.6: Sectoral Distribution of Workforce in India

Sector 1950- 1960- 1970- 1980- 1990- 1999- 2008-
51 61 71 81 91 00 09

Primary 72.1 71.8 72.1 68.8 66.8 56.7 56.5

Secondary 10.7 12.2 11. 2 13.5 12.7 17.5 18.8

Tertiary 17.2 16.0 16.7 17.7 20.5 25.8 24.8

Source: Website www. Circonidia.com

Growth Rate of Sectoral Employment

Table 4.7 presents the comparative growth rates of

employment by major activities. The figures show that the
112

average growth rate of total employment was 1.58 during 1983-

88, which increased to 2.29 during 1988-94. After that during
the period of 1994-00, it decreased to 1.07 and then went
negative, i.e., -0.69 during the period 2000-09. Thus, in an
agrarian economy like India, liberalization has only a marginal
impact on the structure of employment. Among various
activities, the long-term growth rate of employment in
agriculture has been only about 1.54 percent per annum while
that of employment in tertiary and its sub-sectors have been
over 3 per cent per annum, whereas, it was 0.02 per cent per
annum in agriculture and remained more than 5 per cent per
annum in tertiary and its sub-sectors during the years 1994-00.
After that the average growth rate of employment went negative
in various sectors and sub-sectors named manufacturing,
electricity, gas and water supply, construction, transport,
storage and communication, and community, social and
personal services.

Table 4.7: Growth Rates of Employment by Major Sectors

Sector Compound Annual Growth Rate (percent per annum)
 1973-78 1978-83 1983-88 1988-94 1994-00 2000-09

Agriculture 1.88 1.42 0.40 2.01 0.02 0.67

Mining & Quarrying 4.87 5.65 6.16 2.29 - 4.18

Manufacturing 5.83 2.92 2.62 1.70 2.58 -2.24

Electricity, Gas 12.48 4.27 6.7 3.08 - -1.65

and Water
Supply

Construction 1.96 6.85 13.84 0.25 5.21 -3.18

Wholesale and 7.15 2.72 4.52 3.13 5.72 2.68

Retail Trade

Transport, 6.31 5.02 2.99 4.07 5.53 -2.21

Storage and
Communications

Financing, 1.69 5.89 5.93 8.85 5.40 4.59

Insurance, Real
Estate &
Business
Services

Community, 3.27 3.41 2.65 4.58 - -0.76

Social and
Personal
Services

Total 2.73 2.13 1.58 2.29 1.07 -0.69

Source: NSSO, 32nd, 38th, 43rd, 50th, Tenth Five Year Plan and Economic Survey of
India, 2009-10
113

Composition of Employment in Organized Sector

Sector-wise composition of employment in organized

sector in both public and private sector is given in tables 4.8a
and 4.8b. The share of agriculture & hunting in generating the
employment in public sector increased marginally from 4.63
lakhs in 1981 to 4.71 lakhs in 2008. Besides, mining &
quarrying increased its share from 8.18 lakhs in 1981 to 11.21
lakhs in 2008. Contrary to it, in the private organized sector,
the share of agriculture & hunting increased marginally from
8.58 lakhs in 1981 to 9.92 lakhs in 2008 and the share of
mining & quarrying decreased from 1.30 lakhs to 1.11 lakhs
during the same period.

Further, the share of services sector in total employment

 is much higher in public sector in comparison to the private
sector. In the public sector services, the share of community,
social and personal services is the highest. In the organized
private sector employment, the share of manufacturing stands
at the top and next to it is the service sector. Total employment
in the organized tertiary sector of the central government's
public sector increased from 109.29 lakhs in 1981 to 133.46
lakhs in 1990, 141.07 lakhs in 2003 and 130.00 lakhs in 2008.
The share of community, social and personal services increased
from 73.55 lakhs in 1981 to 96.09 lakhs in 2003 and then
decreased marginally to 88.54 in 2008. In the private organized
sector, employment in the community, social and personal
services increased from 12.22 lakhs in 1981 to 16.58 lakhs in
1996 to 17.56 lakhs in 2003 and to 21.73 lakhs in 2008. The
share of manufacturing sector in private organized employment
stood almost same as it was 45.45 lakhs in 1981 and 49.70
lakhs in 2008.
114

Table 4.8 a: Employment in Organized Public Sector in India

Industry Public Sector Employment (lakh persons) in year

1981 1991 1996 2000 2001 2002 2003 2004 20

Agriculture, 4.63 5.56 5.40 5.14 5.02 4.83 5.06 4.93 4.

Hunting etc.

Mining & Quarrying 8.18 9.99 9.93 9.24 8.75 8.61 8.47 10.30 10

Manufacturing 15.02 18.52 17.38 15.31 14.30 13.50 12.60 11.89 11

Electricity, Gas 6.83 9.05 9.46 9.46 9.35 9.23 9.13 8.74 8.
and Water
Supply

Construction 10.89 11.49 11.59 10.92 10.81 10.26 9.48 9.32 9.

Wholesale and 1.17 1.50 1.62 1.63 1.63 1.57 1.82 1.81 1.
Retail Trade

Transport, Storage 27.09 30.56 30.92 30.77 30.42 30.09 29.39 28.15 27
and
Communications
 Financing, 7.48 11.94 12.80 12.96 12.81 12.30 13.77 14.08 14
Insurance, Real
Estate &
Business Services

Community, Social 73.55 92.27 95.20 97.71 98.30 97.35 96.09 92.76 92
and Personal
Services

Total 154.84 190.58 194.29 193.14 191.38 187.73 185.80 181.97 180

Source: Economic Survey of India, various issues

115

Table 4.8 b: Employment in Organized Private Sector in India

Private Sector Employment (lakh persons)

Industry 1981 1991 1996 2000 2001 2002 2003 2004 20

Agriculture, 8.58 8.91 9.19 9.04 9.31 8.55 8.95 9.17 9

Hunting etc.

Mining & Quarrying 1.30 1.00 1.07 0.81 0.79 0.68 0.66 0.65 0

Manufacturing 45.45 44.81 50.49 50.85 50.13 48.67 47.44 44.89 44

Electricity, Gas 0.35 0.40 0.42 0.41 0.52 0.42 0.50 0.47 0
and Water
Supply

Construction 0.72 0.73 0.53 0.57 0.57 0.56 0.44 0.45 0

Wholesale and 2.77 3.00 3.17 3.30 3.39 3.35 3.60 3.51 3
Retail Trade

Transport, Storage 0.60 0.53 0.60 0.70 0.76 0.76 0.79 0.81 0
and
Communications

Financing, 1.96 2.54 3.06 3.58 3.70 3.91 4.26 4.58 5

Insurance, Real
Estate &
Business Services

Community, Social 12.22 14.85 16.58 17.23 17.34 17.42 17.56 17.92 18
and Personal
Services

Total 73.95 76.77 85.12 86.46 86.52 84.32 84.21 82.46 84

Source: Economic Survey of India, various issues

116
 Thus, it is obvious that the percentage share of service sector in
total organized employment is much higher in public sector compared
to private sector. In public sector too, percentage share of local bodies
in service sector is the maximum. Employment in central government
comes to be the next. It is evident that there is no significant change
in occupational structure in India. But the shift in workforce from the
primary sector to the tertiary sector is more than that of secondary
sector.

For the economy as a whole, labour productivity growth can be

achieved through technological progress and/or by moving resources
from low- to higher-productivity sectors. As mentioned earlier, the
type of productivity growth achieved by the latter approach tends to be
more important for the developing countries. The introduction of new
technology and a structural shift of the economy may, however, cause
employment problems if output is not increased. Hence, sufficient
dynamism (output growth) in the higher-productivity sectors will be
required in the process of structural change if remunerative jobs are
to be generated for all workers and the creation of unemployment is to
be prevented.

Output Disposition and Input Structure of the System

To analyze the input and output structure and changes over

time six Input-Output Transaction Tables (IOTTs) have been used. Big
115 sector tables have been summarized to show only a two sectors
economy: „commodity sector‟ and „service sector‟ (see Appendix A-I &
A-III). Table 4.9 gives a comparative picture of percentage distribution
of output disposition and input structure of commodities and services
for the years: 1973-74, 1978-79, 1983-
84, 1989-90, 1993-94, 1998-99, 2003-04 and 2006-07.
117

Output Disposition

The commodities have utilized 47.6 percent of commodity output

for intermediate consumption in 2006-07, as against 45.7 percent in
2003-04, 41.2 percent in 1998-99, 40.3 per cent in 1993-94, 42.5
percent in 1989-90, 40.3 per cent in 1983-84 38 per cent in 1978-79
and 34.5 percent in 1973-74. The input use of commodities by
commodity sector has improved from 34.5 percent in the year 1973-74
to 47.6 percent in 2006-07. On the other hand, the Service sector
have utilized 13 per cent of service output for intermediate
consumption in 2006-07 as against 12.9 percent in 2003-04, 13.2
percent in 1998-99, 11.7 per cent in 1993-94, 12.8 per cent in 1989-
90, 13.1 per cent in 198-84 15.5 per cent in 1978- 79 and 9.4 per cent
in 1973-74. Thus the use of services as input in the service sector has
improved to 13 percent in the year 2006- 07 as compared to the same
as 9.4 percent in 1973-74. In the last quarter of a century, the
intermediate input use of the commodity production has increased its
dependence on the commodity sector and service sector has increased
its dependence for its intermediate input use on the service sector.
The intermediate-use of services in commodity sector has changed
marginally in the entire period under consideration. The overgrowth of
service sector is going more to the final use than to the intermediate
input. This implies the emerging structure of the economy is going to
be characterized by development of sectors that are loosely connected
to the production and tightly connected to the consumption. The
system is going to be a producer of final consumption goods rather
than intermediate inputs.

Final Use

The component of final use in the output shows a consistent

decline (table 4.9) with slight exceptions. Thus, the share of
commodities in final use to total commodity output is 43.5 percent
118

in 2006-07 as against 45.0 percent in 2003-04, 50.9 per cent in 1998-

99, 52.0 percent in 1993-94; 51.4 per cent in 1989-90, 53.2 per cent
in 1983-84; 56.1 per cent in 1978-79; and 60.2 per cent in 1973-74.
The decrease in the share of commodities in final use indicates that
production system of the economy is picking up. There is slight
decrease in the share of services in final use to total output of
services, which is 60.9 per cent in 2006-07, as compared to 62.6 per
cent in 2003-04. The final use of services during the same period has
rather increased in the same period. Thus the emerging structure is
gradually altering the final use basket by reducing the commodity
consumption and increasing the share of services.
119

Table 4.9: Percentage Distribution of Output

Item Year Commodity Services Intermedi Final Use Total
ate Use Output
(3+4) (5+6)

1 2 3 4 5 6 7

Commodity 1973-74 34.5 5.3 39.8 60.2 100

1978-79 38.0 5.9 43.9 56.1 100

1983-84 40.3 6.5 46.8 53.2 100

1989-90 42.5 6.2 48.6 51.4 100

1993-94 40.3 7.6 48.0 52.0 100

1998-99 41.2 7.9 49.1 50.9 100

2003-04 45.7 9.3 55.0 45.0 100

2006-07 47.6 8.8 56.5 43.5 100

Services 1973-74 21.2 9.4 30.6 69.4 100

1978-79 23.4 15.5 38.9 61.1 100

1983-84 24.4 13.1 37.5 62.5 100

1989-90 27.8 12.8 40.6 59.4 100

1993-94 26.8 11.7 38.5 61.5 100

1998-99 23.6 13.2 36.8 63.2 100

2003-04 24.5 12.9 37.4 62.6 100

2006-07 26.1 13.0 39.1 60.9 100

Subtotal 1973-74 31.2 6.4 37.6 62.4 100

1978-79 33.7 8.7 42.4 57.6 100

1983-84 35.5 8.5 44.0 56.0 100

1989-90 37.9 8.2 46.2 53.8 100

1993-94 35.6 9.1 44.6 55.4 100

1998-99 34.5 9.9 44.4 55.6 100

2003-04 37.7 10.6 48.3 51.7 100

2006-07 39.8 10.3 50.2 49.8 100

Net 1973-74 46.3 11.9 58.2 41.8 100

In-direct
Taxes 1978-79 49.8 14.5 64.3 35.7 100
 1983-84 48.5 11.9 60.4 39.6 100

1989-90 54.0 10.6 64.5 36.5 100

1993-94 23.3 17.1 40.4 59.6 100

1998-99 29.2 18.1 47.4 52.6 100

2003-04 32.3 13.5 45.8 54.2 100

2006-07 31.1 11.2 42.4 57.6 100

GVA 1973-74 70.1 29.9 100

1978-79 63.3 36.7 100

1983-84 63.0 37.0 100

1989-90 71.2 28.8 100

1993-94 56.1 43.9 100

1998-99 54.2 45.8 100

2003-04 47.2 52.8 100

2006-07 47.9 52.1 100

Source: Input Output Transaction Tables, various years

120

Input Structure

On the other hand, in the case of services producing industries

the Gross Value Added (GVA) to output ratio is almost the same for
2006-07 and 2003-04 at 69.7 per cent and 70.1 per cent, respectively
(Table 4.10). The GVA to total output ratio of all industries are same
for both the years of 2006-07 and 2003-04. The material inputs of
commodities has increased from 39.1 per cent in 1993-94 to 39.5 per
cent in 1998-99, 45.5 percent in 2003-
04 and 47.4 percent in 2006-07, where as in the case of services, it
was 14.2 percent in 1993-94, then decreased to 13.8 per cent in
1998-99, then increased to 14.8 percent in 2003-04 and again
decreased to 14.7 percent in 2006-07.

The component of commodities as input in the service

producing industries has increased marginally from 15.4 per cent in
2003-04 to 15.7 in 2006-07. And, there is also a slight increase in the
component of services as input in the service producing industries,
from 13 per cent in 2003-04 to 13.1 percent in 2006-07. Looking into
the composition of final use, it is observed that of the total final use
53.0 percent relates to commodities and 42 per cent to services, in
2006-07. The corresponding figures for 1993-94, 1989-90, 1973-74,
1978-79 and 1973-74 were, 58 per cent and 37 per cent; 64 per cent
and 33 per cent; 64 per cent and 32 per cent; 66 per cent and 30 per
cent and 70 per cent and 26 per cent respectively. Commodity input
requirement of the service sector is continuously on decline and
service input requirement by the service sector is on the rise.
121

Table 4.10: Percentage Distribution of Inputs

Item Year Commodity Services Intermediate Use Final Use
(3+4)

1 2 3 4 5 6

Commodity 1973-74 34.5 16.4 30.0 69.9

1978-79 38.0 14.1 31.0 66.3

1983-84 39.5 16.0 32.8 63.9

1989-90 41.3 14.8 33.7 63.5

1993-94 39.1 14.8 31.0 57.6

1998-99 39.5 14.0 30.5 54.6

2003-04 45.5 15.4 34.2 51.9

2006-07 47.4 15.7 36.0 53.0

Services 1973-74 6.9 9.4 7.6 26.4

1978-79 9.7 15.5 11.4 29.9

1983-84 10.2 13.7 11.2 32.1

1989-90 12.0 13.7 12.5 32.6

1993-94 14.2 12.4 13.6 37.1

1998-99 13.8 14.2 13.9 41.1

2003-04 14.8 13.0 14.1 43.9

2006-07 14.7 13.1 14.1 42.0

Subtotal 1973-74 41.4 25.8 37.6 96.3

1978-79 47.7 29.6 42.4 96.2

1983-84 49.7 29.7 44.0 96.0

1989-90 53.3 28.5 46.2 96.0

1993-94 53.4 27.2 44.6 94.7

1998-99 53.3 28.2 44.4 95.7

 2003-04 60.3 28.4 48.3 95.8

2006-07 62.1 28.8 50.2 95.1

Net 1973-74 3.5 2.7 3.3 3.7

Indirect
Taxes 1978-79 4.5 3.2 4.1 3.8

1983-84 4.0 2.4 3.6 4.0

1989-90 4.8 2.3 4.1 4.0

1993-94 1.8 2.7 2.1 5.3

1998-99 2.1 2.5 2.3 4.3

2003-04 2.2 1.5 1.9 4.2

2006-07 2.2 1.4 1.9 4.9

GVA 1973-74 55.1 71.5 59.1

1978-79 47.8 67.2 53.5

1983-84 46.3 67.9 52.4

1989-90 41.9 69.2 49.8

1993-94 44.8 70.1 53.3

1998-99 44.6 69.4 53.3

2003-04 37.5 70.1 49.7

2006-07 35.8 69.7 47.9

Total 1973-74 100 100 100 100

Output
1978-79 100 100 100 100

1983-84 100 100 100 100

1989-90 100 100 100 100

1993-94 100 100 100 100

1998-99 100 100 100 100

2003-04 100 100 100 100

2006-07 100 100 100 100

Source: Input Output Transaction Tables, various years

122

Thus the service sector has very high value added component as
compared to the commodities. Further, the service sector has
backward multiplier effect on the service sector and in the long run it
hampers the growth of commodity sector.

Inter-Industry Transactions
 Table (4.11) shows inter industry transactions for different
sectors. During the year 2006-07, the consumption of sectors‟ own
output is, 21.4 in the case of primary sectors and 76 per cent in the
case of secondary sectors. The corresponding figures for the years
1973-74, 1978-79, 1983-84, 1989-90, 1993-94, 1998-99 and 2003-
04, were 44 per cent and 69 per cent; 43 per cent and 72 per cent; 39
per cent and 70 per cent and 34 per cent and 74 per cent, 32 per cent
and 70.5 per cent and 24 per cent and 71 per cent and 29.0 percent
and 72.2 percent respectively. In the intermediate use of primary
sector, other than what has been used by the primary sector, has been
shared by the secondary sector (70 percent) and, „transport,
communication and trade sector‟ (7.9 percent) and the „other services
sector‟ (0.02 per cent). The use of secondary sector product by
„primary‟, „transport, communication and trade‟ and „other services ‟
sector in the year 2006-07, has been 5.7 per cent, 16.7 per cent and
1.6 per cent respectively. Intermediate supply of „transport
communication and trade‟ and „other services‟ sector has been
largely to secondary sector, which is of the order of 61 per cent and 41
per cent respectively. The output of „other services‟ has been used by
primary, „transport, communication and trade‟ and self; having the
shares of total intermediate as 2.7 per cent, 22 per cent and 33 per
cent, respectively.
123

Table 4.11: Percentage Distribution of Inter-Industry Transactions

Item Year Primary Secondary Transport, Other Total
Sector Sector Communicat Services Output
ion And Sector
Trade
Sector

1 2 3 4 5 6 7

Primary 1973-74 44.4 47.6 7.9 0.1 100

Sector
1978-79 43.1 50.3 6.3 0.3 100

1983-84 39.2 54.8 5.6 0.4 100

1989-90 34.3 60.0 5.1 0.6 100

1993-94 32.1 61.4 6.0 0.5 100

1998-99 24.3 69.8 5.6 0.3 100

2003-04 29.0 64.4 6.6 0.02 100

 2006-07 21.4 70.7 7.9 0.02 100

Secondary 1973-74 12.4 69.0 9.6 9.0 100

Sector
1978-79 10.9 71.8 11.7 5.6 100

1983-84 11.0 70.4 11.8 6.8 100

1989-90 9.9 74.0 10.9 5.0 100

1993-94 9.3 70.5 10.2 5.1 100

1998-99 7.6 71.9 13.6 6.9 100

2003-04 6.7 72.2 19.5 1.6 100

2006-07 5.7 76.0 16.7 1.6 100

Transport, 1973-74 9.4 59.9 24.2 6.5 100

Communicat
ion And 1978-79 10.9 52.3 32.6 4.2 100
Trade
Sector
1983-84 12.4 57.1 26.0 4.5 100

1989-90 11.0 63.0 21.5 4.5 100

1993-94 13.2 67.7 15.0 4.0 100

1998-99 10.6 65.4 16.5 7.5 100

2003-04 9.2 59.3 29.0 2.6 100

2006-07 8.0 61.3 27.9 2.7 100

Other 1973-74 8.9 60.7 20.2 10.2 100

Services
Sector 1978-79 5.5 45.6 33.0 15.9 100

1983-84 6.5 48.5 33.3 11.7 100

1989-90 6.3 51.9 28.4 13.5 100

1993-94 4.8 41.3 40.5 13.3 100

1998-99 3.1 44.6 25.8 26.5 100

2003-04 3.0 35.8 22.0 39.2 100

2006-07 2.7 41.7 22.2 33.4 100

Total 1973-74 24.2 58.9 11.7 5.2 100

Output
1978-79 19.3 60.3 15.9 4.5 100

1983-84 18.6 62.1 14.3 5.0 100

1989-90 15.4 66.8 13.1 4.7 100

1993-94 14.7 65.0 15.6 4.7 100

1998-99 11.0 66.7 14.1 8.2 100

2003-04 11.9 66.0 19.4 2.7 100

2006-07 9.1 70.3 18.1 2.5 100

Source: Input Output Transaction Tables, various years

 Thus, in case of primary sectors, own output consumption as

intermediate input is continuously falling over time. On the other

124

hand, own output consumption is improving in case of secondary

sectors. Hence primary sector is gradually getting integrated with

other sectors of the economy but the secondary sector is integrating

within itself.

Table 4.12, depicts the distribution of inputs in different

sectors. The input requirement of primary sector have gone down from

34 per cent in 2003-04 to 32 per cent in 2006-07 mainly due to the

decrease in the consumption of products of primary and secondary

sectors. In the year 2006-07, the GVA in primary sector has been 72.0

per cent of the total output, which is higher than the corresponding

figure of 70.5 per cent, in 2003-04. The corresponding figures in

1983-84, 1978-79 and 1973-74 are 71.5 per cent, 71.7 per cent, 76.2

per cent respectively. The GVA-output ratio, in the sectors of primary,

secondary and other services have gone up, in comparison to 2003-04

from 70.9 per cent to 72 per cent, 25 per cent to 25 per cent and 81.7

per cent to 81.7 per cent respectively, while that of „transport,

communication and trade‟ has gone down, while that of other services

have gone down from 67 per cent to 66 per cent. The intermediate

input of „transport, communication and trade‟ sector for 2006-07 (31

percent) has gone down from that of 36.7 per cent during 1993-94,

which has been

39.2, 37.8 and 30.7 percent in the years 1983-84, 1978-79 and 1973-

74, respectively. So we can conclude that the input requirement is the

minimum in other services sector and is the maximum in secondary

sector.

125
Table 4.12: Percentage Sectoral Distribution of Inputs
Item Year Primary Secondary Tertiary Total
Output

1 2 3 4 5 7

Primary 1973-74 16.5 19.4 8.1 0.2

1978-79 16.7 14.2 4.1 0.4

1983-84 16.7 15.4 4.2 0.4

1989-90 15.4 13.6 3.3 0.7

1993-94 13.5 14.0 3.1 0.3

1998-99 10.9 14.5 2.9 0.2

2003-04 17.6 14.4 2.2 0.0

2006-07 13.8 13.3 2.5 0.0

Secondary 1973-74 4.8 29.5 10.3 17.6

1978-79 7.1 34.1 12.8 12.1

1983-84 8.0 33.9 15.2 11.1

1989-90 9.5 36.0 15.0 12.7

1993-94 8.4 36.5 16.2 7.5

1998-99 7.9 34.6 16.1 10.7

2003-04 9.5 37.9 15.5 5.5

2006-07 10.5 40.8 15.5 6.0

Tertiary 1973-74 1.5 10.1 10.2 5.0

1978-79 3.2 11.0 15.7 4.1

1983-84 3.4 10.4 12.7 2.8

1989-90 3.7 10.8 10.4 4.0

1993-94 5.2 14.4 7.2 2.6

1998-99 4.2 11.9 7.4 4.3

2003-04 6.9 16.5 12.1 4.5

2006-07 7.0 15.5 12.3 4.9

Other 1973-74 0.3 2.5 2.1 1.9

1978-79 0.5 3.1 5.2 4.9

1983-84 0.8 3.9 7.1 3.2

1989-90 1.2 4.8 7.5 6.6

1993-94 0.9 4.2 9.4 4.1

1998-99 0.9 5.9 8.4 11.2

2003-04 0.3 1.1 1.1 7.9

2006-07 0.3 1.2 1.1 7.1

 Total 1973-74 23.1 61.5 30.7 24.7
Input
1978-79 27.5 62.4 37.8 21.5

1983-84 28.9 63.6 39.2 17.5

1989-90 29.7 65.2 36.1 24.0

1993-94 27.9 67.2 36.7 14.6

1998-99 23.9 66.9 34.8 26.4

2003-04 34.3 69.9 30.9 17.9

2006-07 31.6 70.9 31.5 18.0

GVA 1973-74 76.2 31.9 65.6 73.5

1978-79 71.7 30.5 57.6 77.0

1983-84 71.9 29.2 57.6 81.1

1989-90 71.5 27.2 60.6 74.7

1993-94 71.0 28.4 59.2 84.7

1998-99 77.9 29.1 61.7 72.1

2003-04 70.9 25.3 67.3 81.7

2006-07 72.0 25.2 66.9 81.7

Total Output 1973-74 100 100 100 100

1978-79 100 100 100 100

1983-84 100 100 100 100

1989-90 100 100 100 100

1993-94 100 100 100 100

1998-99 100 100 100 100

2003-04 100 100 100 100

2006-07 100 100 100 100

Source: Input Output Transaction Tables, various years

126

Distribution of Output in Final Demand Categories

Following table (table 4.13) shows the distribution of various

components in total output. The intermediate demand of industries
accounts for nearly 50 per cent of domestic output in 2006-07,
whereas it has been 48, 44, 45, 46, 44, 42 and 38 per cent in the
years 2003-04, 1998-99, 1993-94, 1989-90, 1983-84, 1978-79 and
1973-74, respectively of the total output. The contribution of PFCE
has come down to 29 per cent, as compared to 46 percent in 1973-74,
that of GFCF has increased from 10 per cent in 1973-74 to 16 per
cent in 2006-07. The contribution of GFCE has been nearly 5 per cent
in 2006-07 and remained more or less at the same level of 6 per cent,
since 1973-74. Net foreign trade forms a negligible proportion of (-1)
percent in total output.

Table 4.13: Distribution of Various Components in Total Output

Year Intermediate PFCE GFCE GFCF Net
Demand Exports

1973-74 38.0 46.0 6.0 10.0 Neg.

1978-79 42.0 41.0 6.0 11.0 Neg.

1983-84 44.0 40.0 6.0 10.0 Neg.

1989-90 46.0 35.0 7.0 12.0 Neg.

1993-94 45.0 37.0 6.0 12.0 Neg.

1998-99 44.0 38.0 7.0 12.0 Neg.

2003-04 48.0 34.0 5.0 13.0 Neg.

2006-07 50.0 29.0 5.0 16.0 Neg.

Source: Input Output Transaction Tables, various years

The broad conclusion, which emerges from the above, is that the
income from services has grown faster than commodity sector in pre
and post green revolution periods. It appears that in general, the
growth rate of service income is independent of the growth rate of
commodity sector income. So gap between the growth rates of
127

services and commodity sector has widened in the eighties as

compared to the seventies.

Demand Decomposition Analysis

The demand side decomposition of output growth (table 4.14),

analyses the changes in the output induced by changes in domestic
demand, exports, imports and intermediate input use, i.e., input-
output coefficients. Demand side decomposition is important, as it
helps in identifying the effects of government policies on growth of
output of an industry and structural changes, as the individual
components of demand reflect economic policies. Such an analysis is
particularly important, as demand pattern for different industries
change with the passage of time due to changes in economy.

Percentage change in the four components: domestic final

demand expansion, export expansion, import substitution and
intermediate demand expansion in the aggregate output of the Indian
economy has been analyzed for three sectors: primary, secondary, and
tertiary. Among the four components of aggregate output, the
components which contribute the maximum have been considered to
be the dominant component. Indian economy is said to domestic final
demand driven, if the contribution of domestic final demand
expansion is the maximum and export driven if the contribution of
export expansion has been the maximum and so on.

As per table, in primary sector the dominating component of

output growth is change in import substitution followed by change in
domestic final demand. In primary sector, the import substitution
component has contributed 96.10 percent to output growth, followed
by domestic final demand contributing 22.75 percent. The export
component and intermediate demand
128

component have rather depicted shrinkage over time. Export

component of output growth has contributed a fall of -5.05 percent
and intermediate demand, the fall of -13.80 percent. In the decade
under consideration, the primary sector output growth has been
import substitution and domestic demand driven. Technological
change driven component and export driven component of output
growth in primary sector have been rather on the negative side, i.e.,
the retarding factors. In the new global regime, when the exports and
new technology had to be the edge, Indian economy has been missed
both; and the primary sector has been domestic import substitution
and demand driven sector. Primary sector has not been able to benefit
from the globalized regime opportunities because of lack of technology
and quality production for exports.

Secondary sector output growth is primarily an import

substitution driven. In secondary sector, the dominating component of
output growth is again import substitution contributing 776.31
percent followed by export expansion contributing -43.31 percent,
final demand contributing -152.31 percent, intermediate demand
contributing -480.69 per cent. Negative contribution of domestic
demand in the output growth is a sign of domestic slowdown of
demand at home and negative contribution of intermediate demand
signifies the non-availability of required technologies to harness the
benefits of opening up of the economy. Thus during the new regime,
the domestic demand and technology have been the bottlenecks in the
growth of secondary sector.

The tertiary sector results are quite different from primary and
secondary sector. Percentage contribution of domestic final demand,
in tertiary sector, to total output growth have been 272.24 percent
followed by exports contributing 32.45 percent, intermediate demand
contributing -5.57 per cent, import
129

substitution contributing -199.12 percent. So, the tertiary sector

output growth, basically a domestic demand driven, has also got a
boost from export growth contribution. On the domestic front, with
the natural growth mechanism, many of the services that earlier used
to be luxuries or comforts have become necessities now, due to easy
availability and enhanced affordability of the masses. Further, many
of the services that were a part and parcel of secondary sector have
been outsourced to independent tertiary sub-sectors. On the export
component of demand, the internationalization and business process
outsourcing has also played a catalytic role in this regard. Import
substitution component of output growth has remained subdued and
major technological breakthrough is not visible in the system as far as
the tertiary sector growth is concerned. It is the domestic and the
international demand that has led the output growth of tertiary sector
in India.

Table 4.14: Sector-wise Percentage Contribution of Components to

Output in India during 1993-94 to 2006-07
Sr. Sector Percentage Percentage Percentage Percentage
No. Change in Change in Change in Change in
Final Export Import Intermediate
Demand Expansion Substitution Demand

1 Primary 22.75 -5.05 96.1 -13.8

2 Secondary -152.31 -43.31 776.31 -480.69

3 Tertiary 272.24 32.45 -199.12 -5.57

India -172.11 -43.33 624.21 -308.77

Source: Calculated.

A comparative analysis of the three sectors underscores the fact

that the much needed technological change is missing in the system.
Primary sector is banking upon domestic demand and import
substitution component and the secondary sector is relying on import
substitution alone. The resulting tertiarization of the Indian economy
is the outcome of enhanced domestic and international demand and
that too in the absence of any major technological change in the
system.
130

The emerging economic structure of India, characterized by

excessive tertiarization, is basically driven by import substitution
demand coming from primary and secondary sectors and domestic
demand coming from primary and tertiary sectors. Export demand
has played a significant role in tertiary sector but the other two
sectors have lagged behind in this regard. Much needed change in the
intermediate input demand component, that signifies technological
change, is altogether missing in the system. In such a situation, the
very viability of over grown tertiary sector also comes under scanner.

Conclusion

The broad conclusions that emerge from above analysis are as

follows. First, the GDP share in agriculture has declined sharply in
India. Secondly, share of industry has increased significantly. Thirdly,
the share of services has increased. Fourthly, the services sector has
become the most important sector; services have emerged as the
dominant sector, industry being contributing only about one-fourth of
GDP. Fifthly, the shift of labour force from agriculture has been slower
than that in GDP share. Sixthly, the services sector is the major
economic sector but a minor contributor to employment. It is because
the tertiary sector has contributed to GDP by productivity growth and
its employment generating potential has been very low. This
contradicts the view held by some economists that services sector
growth is primarily a result of its low productivity.